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Private placement memorandum definition
A Private Placement Memorandum (PPM) also popularly called as Offering Memorandum is a legal document used to offer investments in a privately held company thinking about raising capital through private placements. PPM is the best way to let your potential investors know all the information they need to know about your company and its offerings so that they can make an informed decision about their investment.
PPM serves as a disclosure document that provides investors with important information about the business, its finances, operations, and other key factors. The PPM should be tailored to the particular business and its offering, but generally includes an introduction to the company, an overview of the terms of the offering, a description of the risks involved in investing, and a description of the use of proceeds.
Although PPMs aren’t legally required, they are expected if you want to attract investment from accredited investors – people with large amounts of money who can afford to risk it on small businesses and start-ups. PPM will be a key to ensuring that the business is taken seriously by investors. It’s important to remember that what you include in your memorandum will ultimately determine whether or not investors will even consider putting money into your business, so it’s imperative that you take the time to write it carefully and accurately from the outset.
When do you need a Private Placement Memorandum (PPM)?
When you are looking to raise capital from private investors, you will need to provide them with a private placement memorandum (PPM).
Note
However, before you begin drafting a private placement memorandum, you need to understand the requirements and rules regarding the same.
When a company offers stocks and bonds to the open public, a prospectus must be registered with U.S. Securities and Exchange Commission (SEC) giving potential investors complete details about the offer made. However, some private placements are covered under exemption Rule 506 (b) under regulation D created by the SEC and is considered a “safe harbor” under Section 4(a)(2).
Under Rule 506 (b), companies are permitted to raise an unlimited amount of money and sell securities to an unlimited number of accredited investors.
Accredited investors are defined by Rule 501 as those who have:
- Earned over $200,000 (or over $300,000 together with a spouse) in the past two years (and projects to earn the same the following year); or
- Net worth over $1,000,000 (not including the value of their home or its mortgage).
Nevertheless, Rule 506 (b) also requires the following requirements:
- Securities will not be advertised or solicited in general;
- The sale of securities to non-accredited investors is limited to 35 (non-accredited investors must possess sufficient knowledge and experience in financial and business matters to assess the potential investment risks).
However, if the company plans to raise money from non-accredited investors, a private placement memorandum (PPM) is required to be prepared. In such a situation, information as specified under Rule 502 (b)(2) should be listed specifically.
A PPM is recommended to protect yourself from regulatory issues, investor lawsuits and other financial risks. Think of it as a courtroom preparation tool; showing that you properly informed investors about the risks involved before they signed up for anything so they knew what they were getting themselves into before signing anything. It’s not enough to just give verbal disclosures – make sure everything is written down for future use!
Private Placement Memorandum checklist
Before you begin drafting your PPM, it’s important to create a checklist of all of the key information that should be included. Here are some of the items you should include in your private placement memorandum checklist:
- Introducing the business
- Highlights of the offering
- Summary of the offering
- Detailed description of the business
- Description of the investment
- Investment purpose and criteria
- Terms of securities offered
- Risk factor
- Use of proceeds from the offering
- Management and compensation
- Financial information (including Financial statements)
- Documents for inspection
- Taxation and legal matters
- Restriction on transfer
- Future projections
- Exhibits
Elements of a Private Placement Memorandum
A well written private placement memorandum is incredibly important, as it can be the deciding factor in whether or not investors choose to invest. Though many don’t know what a PPM is and some even consider them superfluous for company offerings, a thoughtful PPM ensures that potential investors are aware of all pertinent information about the company being offered to them. There’s many pieces that go into creating a private placement memorandum; the most noteworthy aspects are outlined below:
Introduction to the business
The best way to start off a private placement memorandum is with an informative section. This includes a brief background on both the company and management, what investment is being offered, how much money is being raised or sold and why, as well as who will be investing. If you are raising capital for an investor in certain jurisdictions, then disclosures about those particular jurisdictions must also be made available.
Management of the business
To ensure the success of any investment, it is important for all relevant details about the business to be communicated. The investor needs to know what types of products or services are being offered; how past performances have been; and even who you are working with to provide these services. Past performance records, current industry trends, competitor details, marketing strategy – all must be disclosed before the investors. This way they can feel confident they’re investing their money wisely because all materials related to this venture were made available before-hand so there was no hidden agenda at play – just someone who wants them to succeed.
Capital structure of the business
One of the most important parts for an investor to know about a company is its capital structure. This includes all authorized, outstanding securities; as well as all long-term debt or liabilities incurred by the company. A detailed financial statement must also be provided for those who are willing to commit a large sum of money to investing in this company or group project. The particular types of statements which are required depend on the specific details pertaining to how much funding will be raised, what federal or state regulations apply, and what stage of development this company is currently at – whether it is in early stages or already well established.
Risk factor
A PPM should include in detail all of the possible risks associated with an investment. These risks can range from ones that are generally present in other investments to specific ones pertaining only to this issuer and its securities. These can range from having too few employees for it to work efficiently, to being out-competed by other firms. Thus, PPM disclaimer is an important component in this process that should be clearly stated and reviewed by a qualified lawyer before being finalized.
Terms of the securities offered
The terms of the securities offered in a PPM should include the type of security (e.g. common stock, preferred stock, convertible debt), the number of shares or amount to be issued, and any restrictions on transferability. Additionally, details such as dividend rates, voting rights, conversion ratios (if applicable) and redemption provisions should all be included in this section so that potential investors have a clear understanding of what they will receive when investing.
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Use of proceeds from the offering
When writing a private placement memorandum (PPM), it is important to include a section that explains the use of the proceeds. This section should detail how much money will be raised, who is allowed to invest, and what types of investments are acceptable. Additionally, provide an explanation for why the funds are being sought and how they will be used. For example, if raising capital for a new business venture describe what type of products or services will be offered and any expected costs associated with launching the project. Provide information about potential return on investment and any risks involved in investing in this opportunity. Ultimately, the focus should be on explaining where investors’ money is going and why it’s worth their time to consider investing in your endeavor.
Financial information
The financial information section of a Private Placement Memorandum (PPM) should provide potential investors with detailed information about the company’s financials. This includes balance sheets, income statements, cash flow statements and other pertinent financial documents that show the current position of the company in regards to its assets, liabilities and overall profitability. It is important to ensure that all relevant financial data is included in this section so that potential investors have an accurate picture of how financially sound the business is before making an investment decision. Additionally, any projections or forecasts for future revenue and expenses should be included as well so that investors can understand what kind of return they may expect on their investment over time.
Exhibits
Exhibits are documents attached to a PPM that provide additional information about the offering. These may include financial statements and/or projections, articles of incorporation, subscription agreements, business plans, and other relevant documents. Additionally, if there are any special terms associated with this particular offering that would be beneficial for potential investors to know then those should also be included in the Exhibits section. Plus, they should be clearly labeled so investors can easily identify them and refer back to them for further review. Exhibits are an important part of a PPM as they provide evidence of the facts being presented in the memorandum. It is essential that all exhibits included with a PPM accurately reflect the contents of the memorandum itself.
Pump up Your Private Placement Memorandum (PPM) with OGSCapital Professional Consultants
When it comes to preparing a private placement memorandum (PPM), it is crucial that all information and documentation is accurate. With so much at stake, creating a PPM can be an intimidating task for many entrepreneurs. This is where OGSCapital Professional Consultants come into play, offering a perfect solution for entrepreneurs who need support in creating a successful Private Placement Memorandum (PPM).
Our knowledgeable professionals have extensive experience with PPMs and understand the importance of accuracy when it comes to preparing these private placement memorandum documents. They can provide invaluable advice on how to effectively structure, market, and distribute your PPM so that you get the best possible results. With OGSCapital Professional Consultants assisting you through every step of the process, your chances of success increase exponentially. We’ll make sure that all information is accurate, up-to-date, and compliant with current regulatory standards – giving you peace of mind knowing that your PPM has been reviewed by experienced industry professionals before being presented to investors.
FAQ
Can OGSCapital help when a customized private placement memorandum is required?
At OGSCapital, we understand that every business has its own unique needs. That’s why we don’t use any pre-prepared private placement memorandum templates, samples, examples and create every document from scratch. In order to tailor every private placement memorandum requirements, our team of professionals takes the time to get to know each client and their specific situations. We take into account factors such as industry trends and regulations, investor preferences, financing goals, and more in order to ensure that our clients receive an effective document that meets all of their objectives.
At OGSCapital, who is responsible for preparing PPMs?
At OGSCapital, we are proud to provide our clients with access to a highly experienced team that has been helping businesses develop Private Placement Memorandums (PPMs) for over 15 years. Our professionals have an in-depth understanding of the many aspects involved in creating these documents and can offer valuable advice on how best to structure your PPM for maximum effectiveness. We understand each client’s unique situation and take into account their particular needs when developing customized solutions that will help them reach their goals. With us, you get comprehensive support from start to finish!
What are the benefits of hiring OGSCapital for preparing a PPM?
OGSCapital offers its services as a private placement memorandum consultant to help you prepare a professional and confidential PPM. Our experienced team of experts can assist you with all your needs, from business plans for banks, to real estate PPM, hedge fund PPM, cannabis PPM, venture capital fund PPM, debt PPM, hard money PPM, LLC PPM, and much more. We have the expertise necessary to craft an effective document that will secure the funding your project needs. Whatever industry you are in, our dedicated team has the know-how needed to create a comprehensive PPM designed specifically for your business goals.
Contact Us to find out how we can assist you in achieving your goal and make sure your Private Placement Offering Memorandum presents all relevant facts clearly and accurately.
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.
